Canadian Tire plans C$3.5 billion REIT, shares soar

By Krithika Krishnamurthy

4 Min Read

Customers arrive at the Canadian Tire store in North Vancouver, British Columbia February 10, 2011.Andy Clark

(Reuters) - Canadian Tire Corp (CTCa.TO), best-known for its namesake automotive and homeware stores, said it plans to create a C$3.5 billion ($3.5 billion) real estate investment trust through an initial public offering in the fall of 2013.

The company, which has one of the largest commercial real estate portfolios in Canada, said it would retain 80-90 percent of the REIT after the IPO, which could raise up to $700 million.

Shares of the company rose as much as 18 percent to their highest in nearly six years on the Toronto Stock Exchange.

The REIT would own about 18 million square feet of property after acquiring a majority of the company's real estate, including its namesake retail stores, retail developments and a distribution center.

Canadian Tire-owned properties currently occupy about 25 million square feet across Canada. The company had over 1,700 retail and gasoline outlets as of March 30.

Canadian Tire currently owns 350 of its 490 namesake stores.

"The REIT over time clearly will acquire more properties from Canadian Tire. That's the likelihood as a source of growth with respect to the REIT," Chief Financial Officer Dean McCann said on a conference call.

Canadian Tire joins a growing list of Canadian and U.S. retailers and other companies with large real estate holdings in opting for a REIT structure, which offers tax advantages.

"Canadian Tire probably considered this in the past, but I think they would have thought, given today's market conditions, the time is right," said Bobby Hagedorn, an equity analyst with brokerage Edward Jones.

Loblaw Cos Ltd (L.TO), Canada's largest grocer, said in December it planned to spin off the vast majority of its property assets into a C$7 billion real estate investment trust. Loblaw plans to complete its REIT IPO in July.

Hudson's Bay Co (HBC.TO), another retailer, has said it may spin off its property assets into a REIT.

However, Tim Hortons Inc THI.TO, the Canadian coffee and doughnut chain that has been under pressure from an activist investor to consider converting to a REIT, said on Wednesday that it had no plans to do so.

The S&P TSX Canadian REIT index .GSPTTRE has outperformed the broader S&P TSX composite index .GSPTSE in the past year due to strong demand for commercial and retail real estate.

EARNINGS RISE

Canadian Tire said the creation of the REIT would have minimal impact on net earnings, cash flow and debt metrics, and would not affect arrangements between the company and its associate dealer network.

The REIT will be capitalized through an equal mix of equity and debt, with the debt being held by Canadian Tire, the company said on the call.

Canadian Tire also reported a 3 percent rise in first-quarter profit to C$73 million, or 90 Canadian cents per share. That was in line with analysts' estimates.

But same-store sales at its namesake retail brand fell 2.4 percent, hurt by lower demand for gardening and outdoor living products.

Canadian Tire's retail segment, at which it also sells such items as bicycles and skates alongside housewares and automotive products, contributed 47 percent to the total revenue.

The company also owns men's clothing chain Mark's, sporting goods chains Sports Chek and Sports Experts among others, as well as gas stations. Nearly 90 percent of Canadians live within 15 minutes of one of its stores, according to the company.

Canadian Tire said Marco Marrone, the chief operating officer of Canadian Tire Retail, would leave the company. He will be replaced by Allan Macdonald, senior vice-president of the company's automotive and marketing business.

Shares of the Toronto-based company, which has a market value C$6.03 billion, were up 13 percent at C$83.42 in afternoon trading.